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One way to earn a second income is to build a portfolio of blue-chip shares that pay out dividends.
How much an investor needs to invest to meet a particular target depends on a few things. One is the prospective dividend yield at the time of investing. Another is whether that prospective yield ends up being delivered. After all, no dividend is ever guaranteed.
Understanding the role of dividend yield
Let’s start with yield.
At a 10% yield, a £5,000 annual second income would require investing £50,000. At a 7.5% yield, it would take £75,000. At a 5% yield, the amount required rises to £100,000.
So, does it make sense just to invest in 10% yielders, such as FTSE 100 insurer Phoenix (LSE: PHNX)?
Maybe – but maybe not.
Just investing on the basis of yield alone is a mug’s game. Dividends can be cut or cancelled — so the prospective yield today can end up being…
